I think I have woken up on another planet. For the last few years I have been living on a planet where we were told that prudence in government spending was the fundemental plank of the governments plans for the future. We were told that the only way for the country to be successful in the future was if we were prudent with our spending.

Suddenly everything is different, apparently. Now the way to make the country successful is to borrow incredible amounts of money, collect less tax and encourage consumers to go out and spend, spend, spend.

I have trouble getting my head around this idea. We are told that too much borrowing and too much spending has brought us the problems we see in the financial industry. It has led to thousands of people facing foreclosure on their homes. We have been through a decade of excesses in all areas and surely that is what has brought us to the position we are in now.

Reducing the cost of living is a good thing and will help lots of people who are struggling with their utility and food bills but if the government now want to encourage people to get out and spend on unimportant luxuries to boost the economy it is dangerous advice for people who are already deeper in debt than they can really afford.

So what happened to Prudence? I think we can safely assume she has left the building and won’t be back for a while yet.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

Many of us have spent our lives going to work each day to earn enough to pay the bills and borrowing from the banks to get those little extras like a house or a car. Yes, modern life has encouraged us to borrow a bit too much and many of us have built up large credit card debts and personal loans.

Generally speaking we have done so in what we thought was a realistic belief that we would be able to repay those debts and though we may have failed to give a great deal of thought to the future cost of those debts we certainly didn’t intend to dig ourselves into a financial hole.

We are human and we think emotionally. Very few of us work through a spreadsheet of income and expenses to establish exactly where all our money comes from or goes to, though maybe more of us should. We are not professional money managers. It’s a sideline for us, just another part of life and all it’s complications.

You would epect things to be very different in the financial industry where people have been paid huge amounts of money to know what is what, when it comes to money. Yet, every week we hear more tales of financial carelessness causing problems for many of the huge financial corporations and all this has led to governments around the world having to bail out companies, pump money into the system. Today, we are expecting the chancellor to offer us yet more borrowed money in a financial stimulus package which, it is hoped, will encourage us all to spend more.

If we all did our financial spreadsheets we would probably decide we should spend less, not more. The system that has driven business over the last few decades seems to be broken and all these measures seem to be just trying to prop up a broken system.

We are constantly told that the problems arose in the US and travelled around the globe but this is not the fault of a few poor people who thought they could improve their lives with these mortgages that they couldn’t afford. They didn’t have spreadsheets and they just did what financial advisers told them they could do.

Borrowed money was the problem, we are told. Poor people who were either stupid, careless or devious, but these people didn’t have spreadsheets. They did what they were told was the best thing for them. Invest in a house, secure your financial future. What they didn’t know was that they were mere pawns in a game being played by, supposedly, financial experts who did have spreadsheets and were supposed to understand what was going on.

News that the US Treasury is to inject billions of dollars into Citigroup to prevent it’s collapse may help it’s 200 million account holders but it does more to support the system that currently exists. How much longer can governments go on pumping yet more borrowed money in to save this slowly sinking, ship?

I discovered this article The End by Michael Lewis who previously wrote a book Liars Poker in 1989 about his experiences on Wall Street and how he thought it was doomed. It’s quite a long article but it makes for chilling reading. To think that these companies and these supposed financial experts were gambling with other people’s money to such an extent and with such little real understanding of what they were dealing with is staggering.

Some bankers have started to say sorry both here and in the USA. I guess that is something similar to someone saying sorry after they accidently shot someone when the gun they were playing with went off. If you play with dangerous weapons you have a responsibility to use them wisely. It’s a shame and a tragedy that the people playing with the financial markets didn’t seem to even realise what they were playing with and how serious it could all become.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

When we think about our finances and expenses we tend to think of the larger things like mortgage payments, car payments, holidays etc. We pay most attention to them because these are the higher ticket items that are most noticeable but many of our expenses are the quiet ones that go unnoticed and the most damaging of these to our finances are the habitual expenses.

So what are habitual expenses?
There are lots of things we buy almost every day without ever giving it a thought. If you are a smoker you buy cigarettes and hardly think about the cost. You may enjoy a drink and think nothing of popping into the pub on your way home for a quick pint and if you are a typical person you probably buy the odd chocolate bar and maybe a bag of crisps with your newspaper or a magazine on your way to work.

None of these are particularly expensive items on their own but when they are habitual purchases they start to add up. If you buy these things every day you are starting to talk about very significant amounts of money over the course of a month and if you start to think of them over a year or especially a lifetime the amounts of money are staggering and all this for non-essential, habitual purchases that, quite frankly, you could easily go without.

When money is getting tight you need to pay attention to these non-essential items and consider whether the cost to your financial situation is worth whatever pleasure they bring. The best way to control your spending is to keep track of it and know where the money goes. This is an essential part of budgeting and I’ll discus that in another post.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)